for company incorporation II. Evolution of the legal framework · 12 . Companies Registry. 1865....

10 Companies Registry

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II. Evolution of the legal framework

for company incorporation

Although Hong Kong became a British colony

in 1842, the history of company incorporation

in Hong Kong did not begin until 1865, when

the first Companies Ordinance was passed by

the local legislature. Before 1865, there were

no local companies in Hong Kong. Companies

operating in Hong Kong at that time were foreign

companies or other forms of business vehicles

registered in other places. For example, Jardine

Matheson was a pa r tnersh ip reg i s te red in

Guangzhou in 1832, but moved its head office to

Hong Kong in 1842. The company was formally

registered in Hong Kong as a local company in

1906. Another example is A.S. Watson, which

opened its first dispensary in Guangzhou in 1828

and extended its operations to Hong Kong in 1841.

It was registered as a company in Hong Kong

in 1886.

Before the Companies Ordinance 1865, companies

that were incorporated elsewhere and established

their offices in Hong Kong were governed by British

law, which was extended to the colony on 29 January

1841 by the proclamation (dated 2 February 1841)

issued by Sir James John Gordon Bremer, Commander-

in-Chief, and Captain Charles Elliot, Plenipotentiary,

on the proviso that the British legislation was general

and not purely local in nature, and not unsuited to

the circumstances of Hong Kong and its inhabitants.

For example, the Oriental Banking Corporation

(headquartered in London with its first branch

established in Hong Kong in 1845), and Standard

Chartered Bank (which registered in the United

Kingdom in 1853 and established its Hong Kong

office in 1859) were among the first few banking

corporations granted the right of issuance of bank

notes in Hong Kong, and the operations of their Hong

Kong offices were regulated by the United Kingdom

laws to the extent that they were appropriate to

the circumstances of Hong Kong and its inhabitants.

Rules regarding company incorporation in the United

Study Report on History of Company Incorporation in Hong Kong 11

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Kingdom therefore also took effect in Hong Kong,

although there was no registration of companies

in Hong Kong until 1865 when the first Companies

Ordinance came into effect.

The development of company law in Hong Kong

can be divided into three distinct periods. The first

covered the years from 1865 to 1948, the second from

1948 to 1984 and the third essentially reflects the

position since 1984. During the first period, company

law reform in Hong Kong largely took the form of

following the most up-to-date English legislation.

Thus, the 1862 Act was followed by the 1865

Ordinance, the 1908 Act by the 1911 Ordinance and

the 1929 Act by the 1932 Ordinance. However, after

1932, Companies Ordinance in Hong Kong ceased to

keep pace with developments in the United Kingdom,

as Hong Kong had other more urgent matters to

deal with besides company law reform, for example,

recovering from the Japanese occupation, the unrest

in the Mainland and finding a role for itself during the

Korean and Vietnam wars. Nevertheless, the genesis

of the current framework is the Companies Ordinance

1865 which mirrored the United Kingdom Companies

Act 1862, the latter representing the consolidation of

legislative changes in England through the preceding

20 years.

The legislation relating to the incorporation of

companies and related matters (i.e., the filing

formality) is contained in Part I of the Companies

Ordinance. This Part prescribes the procedures and

requirements involved in incorporation, the content

of memorandum and articles of association, their

statutory form and registration. As will be seen below,

very little of real substance in this Part has changed

since its original formulation in 1865. Nevertheless, a

few changes are worth noting, as listed below.


1865



T he Companies Ordinance 1865 was formed on the

basis of the 1862 Act in the United Kingdom. The

transplantation was primarily for the benefit of British

business rather than local business, and the adoption

of the legislation was important for the maintenance of

investment by English companies in the colony. Despite the

obvious social, cultural and economic differences between

Hong Kong and England in 1865, the English legislation

was adopted practically verbatim. The early 1860s

witnessed a financial boom in the treaty ports in China, and

businessmen in Hong Kong were highly optimistic about

Hong Kong’s future prospects. In a sense, the passing

of the 1865 Ordinance was an inevitable event, given

the times. In that year, the first Companies Ordinance in

Hong Kong came into operation, with Part I concerning the

constitution and incorporation of companies.

The minimum number of persons who could combine

their capital to carry on a particular business, required

for the incorporation of a joint stock company was 7. It

was stated that any 7 or more persons associated for

any lawful purpose could, by subscribing their names to a

memorandum of association, and otherwise complying with

the requirements of this ordinance in respect of registration,

form an incorporated company, with or without limited

liability. It was also prohibited to register companies with

identical or resembling names.

Two kinds of limited liability were provided for under

the ordinance. One was to limit their liability to the

amount unpaid on the shares respectively held by them,

i.e. a company limited by shares. The memorandum of

association of such a company should contain certain

prescribed information, such as the name of the proposed

company, with the word “limited” appearing at the end of

the name. The second type of limited liability was to the

amount that the members may respectively undertake by

the memorandum of association to contribute to the assets

of the company in the event of its being wound up, i.e. a

company limited by guarantee. There is also a third form

of company, i.e. a company having no limit placed on the

liability of its members, or an unlimited company.

The memorandum had to be signed by each subscriber.

The memorandum included a covenant to observe all of

the conditions of the memorandum. Certain matters in the

memorandum, such as the increase of capital or the division

of its capital into shares, could be altered by its members

under certain circumstances.

Once the memorandum of association and the articles of

association were registered, the Registrar must certify

that the company was incorporated. A copy of the

memorandum of association and the articles of association

must be forwarded to every member at his request with the

payment of a certain fee.

The company could also change its name. The Registrar

of Companies must enter the new name of the company

in the Register in place of the old name, and must issue

a certificate of incorporation on change of name that

reflected the new circumstances.


1866 I n those days, companies formed for the purpose of

conducting banking business were often incorporated

by a special ordinance; for example, the Hongkong and

Shanghai Banking Corporation Limited was incorporated

under Ordinance No. 5 of 1866. Such special ordinances

often contained special provisions that were not found in

the Companies Ordinance, and the banking corporations

were therefore not to be affected by the general provisions

in the Companies Ordinance. Thus, it was made clear in the

1866 amendment that nothing in the Companies Ordinance

1865 applied to or affected such corporations.

Furthermore, Ordinance No. 3 of 1866 provided the rules

for the registration of companies existing at the time of

the commencement of the Companies Ordinance 1865

or thereafter formed under any other ordinances or

Letters Patent. A series of documents were required to

be delivered to the Registrar of Companies prior to the

registration of such companies, although the lists vary

according to the nature of the companies.

1877T he changes to the law authorised the Governor to

direct a charitable company (i.e. “a limited company for

non-profit purpose, such as for the purpose of promoting

commerce, art, science, religion, charity, or any other useful

object, and that it was the intention of such association

to apply any profits or other income of the association,

in promoting its objects, and prohibited the payment of

any dividend to the members of the association”) to be

registered with limited liability without adding the word

“Limited” to its name. However, a number of conditions and

regulations could be imposed in the licence granted by the

Governor in return for the privilege of limited liability.


1890

F or the first time in the history of Hong Kong, a company

was permitted to alter its objects (or purposes) as

stated in its memorandum of association or deed of

settlement. This followed an earlier ordinance, The

Hongkong Land Investment and Agency Company Limited

Ordinance 1890, passed on 9 April 1890, which allowed The

Hongkong Land Investment and Agency Company Limited

to transact business elsewhere than in the Colony and to

extend its powers of investments, which it was unable to

do under its articles of association. This 1890 Amendment

Ordinance followed mutatis mutandis the Companies Act

which was then passing through the Imperial Parliament on

the subject. Generally speaking, the objects of a company

are stated in a clause contained in the memorandum

of association for the company regarding its general

commercial objects. The scope of business of a company

is confined by the objects of the company, and, where the

business activity of a company falls outside its objects

(i.e. ultra vires), the transaction conducted will be void.

Hence, the objects clause (i.e. the clause that sets out the

purposes) of a company defines the scope of the company

for doing business. Before this amendment, alteration of

this clause was forbidden.

The ultra vires doctrine is intended for the benefit of the

members and creditors of a company, who are entitled to

be secure in the knowledge that if the company extends its

business beyond the permitted objects, any contracts made

will be void and incapable of ratification by the company.

The amendment in Ordinance No. 25 of 1890 allowed a

company to alter its objects by special resolution. However,

such alteration was subject to the confirmation of the

court on petition by the company. The ordinance set out a

list of circumstances under which the proposed alteration

might be confirmed, such as to carry on the business

more economically or more efficiently; to attain its main

purpose by new or improved means; to enlarge or change

the local area of its operation; to carry on certain business

or businesses which under existing circumstances might

conveniently or advantageously be combined with the

business of the company; or to restrict or abandon any of

its objects. In addition, the company was required to deliver

the court’s confirmation order to the Registrar of Companies

within a certain period of time. The company could be

liable to pay a fine for default of such delivery.




1911

I n 1911, a new Companies Ordinance was promulgated. This ordinance followed the 1908 Act in the United

Kingdom. In essence, it revised a large part of the previous Companies Ordinance 1865.

Large partnerships consisting of more than 20 persons for providing financial services, such as banking, were prohibited under this ordinance. It was stated that to carry on the business of banking or any other business that had for its objects the acquisition of gain, a company rather than a partnership had to be formed and registered under the Companies Ordinance 1911 or other special ordinance or charter.

In terms of private companies, the minimum number of persons required to form a private company was reduced from 7 to 2 persons. The lower threshold for the establishment of a private company facilitated the incorporation of such companies and resulted in a mild increase in the number of newly incorporated companies in the next two decades (1910s –1920s).

The ordinance also included a few changes regarding the memoranda of companies limited by guarantee. For example, the memorandum must state that the liability of the members was limited, and if the company had a share capital, the memorandum must also state the amount of

share capital registered and the division of the capital into shares of a fixed amount; each subscriber must take at least one share; and each subscriber must state against his name the number of shares he took.

In the case of an unlimited company, if the company had a share capital, each subscriber must take at least one share; and state the number of shares he took.

This ordinance also extended the time limit for the delivery of alteration of objects to the court from 15 days to 28 days and increased the fine for default from a penalty not exceeding $50 to one not exceeding $100 for every day’s default.

It also allowed the alteration of articles of association by a company by special resolution subject to the conditions contained in its memorandum.

The effect of the memorandum and articles of the company was also made clear in the new law. It was stipulated that the memorandum and articles would bind the company and the members thereof to the same extent as if they respectively had been signed and sealed by each member. In addition, any money payable by any member to the company under the memorandum or articles would be a debt due from him to the company in the nature of a speciality debt.

The penalty that a company was liable to pay for failing to send to the members, at their request, a copy of the memorandum and of the articles was reduced from a fine not exceeding $25 to one not exceeding $10.

A restriction on not-for-profit companies was imposed by the new law. It was stated that a company formed not for profits could not hold more than two acres of land without the licence of the Governor. The Governor could by licence empower any such company to hold lands in such quantity, and subject to such conditions, as he might think fit.

Some new provisions as to companies limited by guarantee were introduced in the new law. It was stipulated that for new companies limited by guarantee, only members could participate in the divisible profits of the company. In addition, any provision purporting to divide the undertaking of the company into shares or interest would be treated as a provision for share capital, notwithstanding that the nominal amount or number of the shares or interests was not specified thereby.


1915A number of amendments were made to the 1911

Ordinance under Ordinance No. 31 of 1915. The bill

was complementary to the China (Companies) Order-in-

Council 1915 issued by His Majesty-in-Council, and together

they were intended to increase the control over Hong

Kong companies which carried on business in China. There

were two types of Hong Kong company: those that were

managed from Hong Kong and those that were managed

from a location in China. The former were termed in the

Order-in-Council and the 1915 Amendment Ordinance

“Hongkong China Companies”, and the latter “China

Companies”.5

In the case of Hongkong China Companies, the Colonial

Government and Courts had territorial jurisdiction and

effective control over the company through its directors

and officers in Hong Kong, whatever their nationality. In

the case of China Companies, as their directors and officers

were resident outside the British Dominions, there was

no effective control over the company, unless some of its

directors and officers were of British nationality, because

the jurisdiction of the Supreme Court for China, which

existed at the time, was in general confined to British

subjects and protected persons. It was this difficulty which

led to the enactment of the Order-in-Council and the 1915

Ordinance.6

For China Companies limited by shares, the solution

adopted was to require that the majority of its directors

and its auditors be British subjects, and that only a British

subject could be appointed to act as liquidator of such

5 Section 2, Ordinance 31 of 1915.

6 Legislative Council meeting dated 2 December 1915, Hong Kong Hansard pp 90-91.




a company, or as receiver or manager on behalf of the

debenture holders, except with the sanction of the Court.

Furthermore, their shares must be issued either as fully paid

up or upon the term that they be fully paid up within three

months after allotment, to avoid the difficulty of recovering

calls from persons of non-British nationality in China. In the

comparatively rare case of companies limited by guarantee,

such companies were not allowed to operate without

the consent of the Minister, who could as a condition of

this consent require that only a British subject could be a

member, or that any member who was not a British subject

had to give security for insuring the payment of the amount

for which he would be liable under the guarantee.

The Order-in-Council also provided that the jurisdiction

conferred by the Hong Kong Companies Ordinances

upon any Court in Hong Kong could be exercised by the

Supreme Court for China, and that that jurisdiction would

be exercised in conformity with the provisions of the Hong

Kong Companies Ordinances. The Order-in-Council and 1915

Ordinance together provided that in all matters relating to a

Hongkong China Company, the jurisdiction of the Supreme

Court of Hong Kong and of the Supreme Court for China

were concurrent and mutually auxiliary, and proceedings

could be transferred from one Supreme Court to the other.

They could also enforce each other’s orders in all matters

relating to China Companies.7

At the same time, a register of companies at Shanghai

was established, where al l documents relating to

China Companies would be filed and fees paid. All acts

undertaken by or before the Registrar at Shanghai had the

same validity as if they had been undertaken by or before

the Registrar of Companies in Hong Kong.8 All documents

required by the Companies Ordinance to be filed with the

Registrar of Companies were required, in the case of a

China Company, to be filed with the Registrar at Shanghai,

and a copy of all such documents, in the case of a Hongkong

China Company, had to be filed with the Registrar at

Shanghai.9 All fees which a company was required to pay

to the Registrar of Companies was, in the case of a China

Company, to be paid to the Registrar at Shanghai.10

The address in the Colony at which the registered office

of the company was to be situated was no longer required

to be stated in the memorandum; it was enough if it was

stated that “The registered office of the company will be

situated in Victoria, Hong Kong”. So one could not find

out the address of the registered office of a company by

inspection of its memorandum.

An additional restriction on the name of the company was

stipulated in the laws. To prevent improper use of the word

“British”, it was stated that the name of the company should

not include the word “British” except with the permission

of the Governor. However, a China Company could be

registered under a name which included the word “British”

without any such permission, because a China Company

would now have a real and substantial British character

under the new law.11

7 Ordinance 31 of 1915, s 5.

8 Ibid, s 3(2).

9 Ibid, s 3(3).

10 Ibid, s 3(4).

11 Ibid, at 92.


1932

T he purpose of the 1932 Ordinance was to consolidate and amend company law with a view to bringing it

into line with that prevailing in England. It followed the Companies Act 1929 very closely, although it was also necessary to incorporate special local provisions taken from the existing ordinances, e.g. provisions for China companies within the limits of the China Orders-in-Council. This ordinance was the last occasion on which Hong Kong law directly followed a consolidation made in the United Kingdom.

The Companies Ordinance 1932 made a number of amendments to the 1911 Ordinance:

Firstly, the memorandum and articles of association had to be printed in the English language.

Secondly, a company was allowed to alter its memorandum to enable it to sell or dispose of the whole or any part of the undertaking of the company, or to amalgamate with any other company or body of persons. A member of the company was not bound by an alteration made in the memorandum or articles after he became a member, if the alteration required him to take or subscribe for more shares than he already had, or increased his liability to contribute to the share capital of, or otherwise to pay money to, the company, unless he agreed in writing to be thus bound.

A company that issued after the date of the alteration any copies of the memorandum which were not in accordance with the alteration would be liable to a fine not exceeding $10 for each copy so issued.

A company not having a share capital was required, according to the new rule, to give notice to the Registrar of Companies of the increase in the number of members in the company. The company and every officer of the company who was in default of compliance would be liable to a fine.

A number of statutory forms of memorandum and articles were also provided for different companies, such as a company limited by shares, a company limited by guarantee and not having a share capital, a company limited by guarantee and having a share capital, and an unlimited company having a share capital, in the Tables in the First Schedule to the ordinance.

A new power was given to the Registrar of Companies to order a change of name where the company inadvertently registered under a name in conflict with the requirements of the ordinance. With some exceptions, certain words were not allowed to be used in a company name, for example, “Chamber of Commerce”, “Building Society”, “Royal”, “Imperial”, “Municipal”, “Chartered”, “Co-operative”, and “British”.

An association formed under a licence from the Governor for promoting charitable objects without the word “Limited” in its name might be regulated by such conditions and regulations stated in the licence, and such conditions and regulations should be inserted in the memorandum and articles, or in one of those documents, if the Governor so directed.

Changes of corporate form were permitted. An unlimited company could be registered under the ordinance as a limited company, and a company already registered as a limited company could re-register.

The definition of member was provided in the ordinance: it stated that the subscribers of the memorandum of a company would be deemed to have agreed to become members of the company, and on its registration would be entered as members in its register of members.

The meaning of “private company” was also stipulated in the ordinance, as well as the circumstances in which a company ceased to be a private company.

It was further provided that the number of members in a company must not be reduced below the legal minimum (which was 2), and if the company carried on business for more than 6 months when the number of members was so reduced, every person who was a member of the company during that time would be severally liable for the payment of the whole debts of the company contracted during that time, and could be severally sued for them.




1936T he words “savings”, “trust”, or “trustee” were not

allowed to be used in the name of a company, unless

the consent of the Governor to such registration had been

obtained. This was to prevent a company being registered

with the name “Savings Bank” or “Savings Society” without

any intention of conducting its business on the principles

governing Trustee Savings Bank in England, or registered

with the word “Trust” or “Trustee” in its name without

being subject to conditions imposed on public companies

registered as Trust Companies.12

1949 T he 1949 Amendment Ordinance was introduced to

allow companies incorporated outside the Colony to

acquire, hold and dispose of immovable property without,

as was at the time necessary, obtaining the consent of

the Governor-in-Council for so doing. The requirement of

consent was thought to be irksome to foreign companies,

and had entailed application to and scrutiny by the

Governor-in-Council on each occasion. It followed a similar

provision in the United Kingdom, which had since been

repealed in 1947. This change in the 1949 Ordinance was

intended to bring the law of the Colony into line with that

then existing in the United Kingdom.

The opportunity was also taken to delete from the principal

ordinance all references to China Companies and Hong Kong

China Companies as a result of the registration of such

companies under Proclamation No. 27 and the regulation

made thereunder.13

12 Legislative Council meeting dated 19 March 1936, Hong Kong Hansard p 45.

13 Legislative Council meeting dated 12 January 1949, Hong Kong Hansard pp 6-7.


1958

A s mentioned above, the 1932 Ordinance allowed a

company formed for charitable purpose to hold no

more than two acres of land without the licence of the

Governor. The 1958 Ordinance changed this by providing

that such company could not hold land at all in the Colony

except with a licence granted by the Governor. This was

intended to prevent the accumulation of excessive areas

of land in the hands of charitable bodies and thereby to

ensure that the best use and development be made of such

land as was available in the Colony, as the land shortage

was notorious. Another important reason for the change

was to do with revenue, as these corporations never died

and therefore land held by them never became liable to

estate duty.14

Furthermore, the 1958 amendment enlarged the meaning

of “charitable purpose”. Under the previous law of 1932,

charitable purpose was defined as being for the purpose

of promoting art, science, religion, charity or any other

like object not involving the acquisition of gain by the

company or by its individual members. However, the 1958

revision made it clear that charitable purpose included

purposes such as the relief of poverty, the advancement

of art, education, learning, literature, science or research,

the making of provision for the cure or mitigation or

prevention of, or for the care of persons suffering from or

subject to, any disease or infirmity or disability affecting

human beings (including the care of women before, during

and after childbirth), the advancement of religion, any

ecclesiastical purpose, the promotion of the moral, social

and physical well-being of the community, or any other

purpose beneficial to the community not falling under

any of the preceding paragraphs. In addition, “land” was

defined as including any estate or interest in land, buildings,

messuages and tenements of whatsoever nature or kind.

14 Legislative Council meeting dated 25 June 1958, Hong Kong Hansard pp 209-217.




1962T he Companies Law Revision Committee was set up to

consider and make recommendations as to the revision

of company legislation. After the Registrar General got

tied up with the banking collapses in 1965, the Committee

was suspended for a short period of time, but was

reconstituted in 1968. With the work of this Committee,

company law revision in Hong Kong entered a new era.

Unlike the previous revision of the 1932 Ordinance, Hong

Kong had become a significant industrial and commercial

centre, and its company law was planned to have its own

features rather than being a direct copy of practice in the

United Kingdom.

1963 W hile the Companies Law Revision Committee was

working on the full-scale revision of the Companies

Ordinance, which would inevitably take a long time, certain

important changes were made to the law separately from

the revision. The most important change made in this year

was the introduction of provisions for the alteration of

objects without the court’s confirmation and power to the

Financial Secretary to appoint an inspector to investigate

the affairs of a company in certain circumstances based

broadly on the United Kingdom’s Companies Act 1948.

Before the change, a company was allowed to alter its

objects in the memorandum only if it was confirmed by

the court. The new law dispensed with the need for

confirmation by the court in every case. However, a change

in the company’s object was subject to challenge before the

courts. The application must be made within 21 days after

the date on which the resolution altering the company’s

objects was passed.


1972

T he Companies (Amendment) Bill 1972 was the first

of several bills which were designed to give effect

to the recommendations of the Report of the Companies

Law Revision Committee on the Protection of Investors.

Its object was to lay down a better legal framework for

the presentation of prospectuses, when shares or other

securities were offered for sale to the public. Hong Kong’s

financial sector was buoyed up by the strength of its

economy and the confidence it engendered in local and

overseas investors. The rapid growth of the economy led

to the establishment of three other exchanges in the late

1960s and early 1970s and the rising share prices and

volume in the stock market had outperformed those of

most other world markets. But the process of rapid growth

brought its own problems. Concern and worry, because

its high price-earnings ratio and low dividend yield had

reached a highly speculative stage, being out of proportion

to what was generally regarded as a reasonable level even

in the most promising economy in other countries, led to

public opinion urging the government to enact legislation

to control or regulate the operation of the market in order

to protect investors. This bill was part of a programme

designed to bring more order and efficiency into the conduct

of trading in securities of all kinds, thereby providing

greater protection for the interests of the investing public.

The bill was based on the recommendations contained in

Chapter 8 of the Companies Law Revision Committee’s

report. This chapter covered the requirements for the issue

in Hong Kong of prospectuses of companies registered

either there or overseas. The Companies Ordinance




as it stood at the time was based very largely on the

United Kingdom Companies Act of 1929. Since then,

the 1948 Companies Act had been passed in the United

Kingdom, following recommendations made by the Cohen

Committee, and in 1962 the Jenkins Committee Report

was produced. This report reviewed the workings of, and

recommended changes to, the 1948 Companies Act and

the 1958 Prevention of Fraud (Investments) Act. Both the

1948 Companies Act and the Jenkins Committee Report

contained a number of provisions or recommendations

concerning prospectuses, and most of these were included

in the 1972 Bill, together with a number of points which

were added by the Hong Kong Government as a result of its

own experience. The whole of this bill, together with the

substantive ordinance, constituted what was, in the then

Financial Secretary, Sir Haddon-Cave’s view, “probably one

of the most up to date pieces of legislation on prospectuses

in the world today”.15

Clause 2 extended the existing definition of “prospectus”

to include documents which did not actually offer shares or

debentures, but were calculated to invite offers from the

public. Clause 3 amended Section 30 to correspond with

the United Kingdom Act of 1948 to include provisions as

to criminal liability for untrue statements in statements in

lieu of prospectuses, which were similar to those provided

for untrue statements in prospectuses. Clause 5 amended

Section 38 of the Companies Ordinance to provide that

every prospectus was to be in English, with a Chinese

translation, and that it should include the information

prescribed in the Third Schedule. Clause 6 prohibited the

publication of an abridged prospectus (by new Section

38B) and inclusion in a prospectus of an expert’s statement

unless he consented in writing (new Section 38C). It also

inserted a new Section 38A which empowered the Registrar

of Companies to issue a certificate of exemption having

effect to relax the provisions of the Third Schedule if, in

his opinion, strict compliance would be irrelevant or unduly

burdensome in particular circumstances. Section 38D

provided, among other things, that the whole prospectus

was to be lodged with the Registrar of Companies before

issue to the public. The responsibility for providing the

Chinese translation rested entirely with the sponsors of the

issue and, if it gave an inadequate or misleading impression

of the English version, the Registrar of Companies could

refuse to accept it. However, registration of a prospectus

did not mean that the share issue was endorsed by the

Government in any way whatsoever as a sound investment.

It merely meant that the prospectus concerned had met all

the statutory requirements for publication.16

Clause 7 repealed and replaced Section 40 relating to

civil liability for mis-statements in prospectuses, so as to

correspond with Section 43 of the United Kingdom Act. It

made directors and promoters of prospectuses as well

as experts quoted in them liable to pay compensation to

subscribers in cases where false or misleading statements

were made in prospectuses and Clause 8 established

criminal liability for such offences. Clause 18 provided for

the regulation of the prospectuses of foreign companies in

much the same way as those of Hong Kong companies.

15 Legislative Council meeting dated 1 November 1972, Hong Kong Hansard pp 83-85.

16 Ibid.


1974

T he Companies (Amendment) Bi l l 1974 was the first of a series of bills designed to give effect

to the recommendations of the second report of the Companies Law Revision Committee. This report, which was tabled at the Legislative Council on 1 August 1973, covered an extremely wide range of subjects in the general field of company law. The Government was of the view that to attempt to implement the Committee’s recommendations all at once, in the form of a completely rewritten Companies Ordinance, would have been a lengthy, complicated and altogether too formidable task. It decided, therefore, to start by implementing in this bill the Committee’s recommendations on company accounts and directors’ reports, which must be filed with the Companies Registry, as the accounts provisions of the ordinance, being more or less self-contained, could be brought up to date comparatively easily.

The existing provisions of the Companies Ordinance relating to company accounts and directors’ reports were almost identical with those of the United Kingdom Companies Act of 1929. The Companies Law Revision Committee studied the changes made by the United Kingdom Companies Acts of 1948 and 1967, together with a number of other changes recommended by the Jenkins Committee on Company Law Reform, but which had not yet been the subject of legislation in the United Kingdom. In passing, the Committee noted that there was no part of company law in which more sweeping changes had been made in United Kingdom than the statutory provisions relating to company accounts.

Clause 12 amended Section 123 of the principal ordinance by requiring a company’s balance sheet and profit and loss account to give a true and fair view of the state of its affairs and of its profit or loss by, inter alia, being drawn up in accordance with the requirements of the Tenth Schedule. This gave effect to equivalent provisions to those in the United Kingdom Companies Act 1948, which set out in general terms the objectives and the standard of disclosure required, whilst prescribing certain specific information that must be given. A new Section 124 further required a holding company to prepare group accounts dealing with




the profit and loss of the company and its subsidiaries. Group accounts must, under Section 125, be consolidated accounts comprising a consolidated balance sheet of the holding company and subsidiaries and a consolidated profit and loss account.

As for directors’ reports, a new Section 129D in Clause 12 required the attachment to a company’s balance sheet of a comprehensive directors’ report which must include, inter alia, details on the state of its affairs, its profit and loss, its principal activities, its proposed dividend, transfers to reserves, changes in fixed assets, issues of shares and debentures and the list of its directors, together with any other matters necessary to help its shareholders better understand the state of its affairs.

Clause 13, which introduced the new Section 141, made radical changes in the matters required to be stated in the auditors’ report. Hitherto, the auditors could simply state a true and correct view according to the best of their information and the explanations given to them, and as shown by the books of the company. In the view of the Companies Law Revision Committee, this was not enough to ensure that a full picture was presented of the company’s affairs, and the Committee pointed out that, in the United Kingdom, it had been held that if a company’s affairs were incompletely revealed by its books, the auditors might nevertheless feel that they were entitled to certify that the balance sheet had been properly drawn up if it accorded with the books. Under the new section, the auditors’ report had to state whether, in the auditors’ opinion, the accounts had been properly prepared in accordance with the provisions of the ordinance and whether, in their opinion, the accounts provided a true and fair view of the company’s position.17

The Companies (Amendment) (No. 2) Bill 1974 amended the principal ordinance to provide for the priority of severance payments by employers to employees.

The Companies (Amendment) (No. 3) Bill 1974 was introduced to prohibit the unauthorised use of the Hong Kong Tourist Association’s name, in either English

or Chinese. This was not prohibited at the time, and experience had shown that it should be. For example, an association operating in the tourist trade had been using a Chinese name similar to the Chinese name used by the Hong Kong Tourist Association, which could have led to some confusion. The amended Section 20 made the unauthorised use of the name of the association or any name closely resembling that of the association an offence.18

The Companies (Amendment) (No. 4) Bill 1974 amended only Section 20 of the Companies Ordinance by improving the existing provisions that regulated the use of names by companies. Under the existing law, no company could be registered by a name which was identical to one by which a company in existence was already registered, or so nearly resembled an existing name as to be calculated to mislead or deceive. Clause 2(a) of this bill added a provision which similarly prohibited the use of the name of a company incorporated outside Hong Kong which had complied with the requisite part of the Companies Ordinance allowing companies incorporated outside Hong Kong to carry on business in Hong Kong. In addition, it sought to prohibit the use of a name identical with that of a body corporate, incorporated or established under an ordinance. At the time, the Companies Ordinance continued to prohibit the registration of companies by certain names without the consent of the Governor, such as names which included the words “Royal”, “Imperial”, “Municipal”, “Chartered”, “Co-operative”, “British”, “Savings”, “Trust”, and “Trustee”. By clause 2(b) of the bill, it was proposed to add the word “Kaifong” to this list.

The power of the Governor to allow or refuse to allow the use of such names was, however, delegated to the Registrar General, who carefully examined each application to establish whether the use of one of these names would be misleading if allowed, and exercised his discretion accordingly. As the use of the word “Kaifong” in a company name was open to very obvious abuse, it was the Government’s view that the ordinance should be amended to restrict its use.19

17 Legislative Council meeting dated 3 July 1974, Hong Kong Hansard pp 973-976.

18 Legislative Council meeting dated 31 July 1974, Hong Kong Hansard pp 1077-1078.

19 Legislative Council meeting dated 13 November 1974, Hong Kong Hansard p 161.


1977T he new Section 20A of the Companies Ordinance

1977 established a system of name reservation, either

for a newly incorporated company or for a new name for

an existing company. The reservation period was three

months from the making of the application, with power to

the Registrar to extend for a further period of three months.

This was repealed in 1990 by Section 4 of the Companies

(Amendment) Ordinance 1990 (Ordinance No. 60 of 1990).

1978

T he Companies (Amendment) Bill 1978 allowed existing

companies already formed for charitable purpose using

the word “Limited” to dispense with the word “Limited” in

their names.




1979

I n the Companies (Amendment) Bill 1979, Section 71A

was introduced to provide statutory protection for listed

public companies against claims for damages arising out

of their replacing lost share certificates. Prior to this, the

only statutory provision governing the issue of replacement

share certificates was Section 14 of the Companies

(Reconstruction of Records) Ordinance, which provided

that the registered holder of shares, or someone claiming

so to be, might apply to a company for the issue of a new

share certificate when he no longer had the original. If

the company then issued a new one, it was indemnified

against all loss subsequently incurred by any person by

reason of its having done so. But Section 14 applied only

to companies incorporated before 25 December 1941. In

the knowledge that they were not covered by a statutory

indemnification, companies incorporated after December

1941 were left to decide themselves whether they wished

to issue replacement certificates. In most cases, they were

reluctant to do so unless the applications were covered by

an indemnity from a bank or some other form of guarantee.

In its second report, the Companies Law Revision

Committee recommended that the protection in Section 14

of the Companies (Reconstruction of Records) Ordinance be

extended to all companies. After consulting the Federation

of Share Registrars and the Exchange Banks Association,

the government concluded that only listed public companies

should be covered, because the number of cases involving

lost share certificates in respect of private or non-listed

public companies was small, and identifying the rightful

owners of their shares was rarely a problem.20

20 Legislative Council meeting dated 17 October 1979, Hong Kong Hansard pp 73-74.


1984

B y 1980, Hong Kong was a major industrial and commercial centre. With so much corporate activity,

Hong Kong clearly needed a more up-to-date company law than its 1932 model. The Companies (Amendment) Bill 1984 continued the law reform journey which had commenced in 1974 when a programme of legislation was initiated to implement the recommendations of the Companies Law Revision Committee Second Report published in April 1973. As a result, the Companies Ordinance was amended again in 1984, which was seen as great progress, but only in the sense that the 1984 Hong Kong legislation was to catch up with the United Kingdom’s 1948 consolidation.21 With the passage of the 1984 Bill, the Standing Committee on Company Law Reform was established to react to particular and discrete points of law put to it by the Registrar of Companies or other members of the public.

The major amendments in the Companies (Amendment) Ordinance 1984 were as follows:

Prior to the amendment, there were discussions regarding the proposal that every company should have certain

specified powers except to the extent that they were excluded expressly or by implication by its memorandum. These powers were intended to be merely ancillary powers exercisable in the course of carrying on a company’s business, and were not its objects. This was to make a distinction between the objects of the company and powers by which a company achieved those objects. Thus, a major feature of the change was the creation of the Seventh Schedule to the ordinance, which contained a list of powers automatically included in a company’s memorandum unless expressly excluded or modified by the memorandum or articles. For example, Clause 1 of the Seventh Schedule allowed a company to carry on any other business which would enhance the value of any of the property or rights of the company. Furthermore, Clause 26 empowered the company to do all such other things as were incidental or conducive to the attainment of the objects and the exercise of the powers of the company.

The amended ordinance also contained a new Table A.

The minimum number of persons required for the incorporation of a public company was reduced to 2. Before the amendment, the minimum number of persons required for the incorporation of such company was set at 7, even though the minimum number of persons required for the incorporation of a private company had already been reduced from 7 to 2 in 1911.

The definition of a company limited by shares was changed slightly. It was provided that where the memorandum of the company stated that the liability of the members was limited, the company was deemed to be a company limited by shares.

The memorandum was no longer required to bear the same stamp as if it were a deed. However, the witness who attested the signature should sign his name and state his occupation and address in legible form.

The company could not alter the memorandum except as allowed by the express provision in the ordinance. There were two minor amendments to the power to object to an alteration of the objects of the company. Under the new law, application could be made to the court to annul the alteration by holders of 5% instead of 15% of the nominal

21 C Bates, “Companies Amendment Ordinance 1984-I”, (1985) 15 Hong Kong Law Journal 167.




value of the issued shares or of the company’s debenture holders. Debenture holders would continue to have power to apply to the court only if the terms of their debentures entitled them to object to such alterations. Secondly, such application could be made within 28 days instead of 21 days after the alteration was made. The notice of the special resolution for the alteration of the objects must be duly given to all of the members of the company. The resolution might abandon or restrict any of the objects or adopt any new lawful object.

It was required that the memorandum after alteration should be certified as correct by an officer of the company. However, the range of the default fine for the company and every officer for failing to deliver notice of the alteration of the company’s object to the shareholders was deleted.

A new Subsection 13(1A) was added to state that a company could not make any alteration or addition in its articles which was inconsistent with any special rights attached to a class of shares (i.e. class rights) in the company.

Section 19 of the Companies Ordinance, as amended by the 1984 Ordinance, provided for the re-registration of unlimited companies as limited companies, and required that a special resolution be passed and an application lodged with the Registrar together with the required documents.

Section 22A was added, giving the Registrar power to require a company to abandon a name by which the nature of the activities of the company was misleading and was likely to cause harm to the public. Before the amendment, the Registrar in Hong Kong did not have a power similar to that of the Registrar of Companies in the United Kingdom, who had a general power to refuse any name which in his opinion was undesirable: there had been a debate as to whether to incorporate a similar power into the Companies Ordinance in Hong Kong. However, the power regarding the undesirability of company names was not adopted in Hong Kong. Rather, the new Section 22A gave the Registrar powers in respect of misleading names.

The insertion of Section 25A was another important breakthrough in the laws. It was trite law that the memorandum of association was unalterable except as

provided by the ordinance, but the articles of association were freely alterable by special resolution. It was therefore possible to render unalterable a provision normally contained in the articles by including it in the memorandum. A new Section 25A was introduced in the amendment to provide that a company could amend by special resolution any provisions contained in its memorandum which could have been contained in its articles. The fine for the company and every officer for failing to provide copies of the updated memorandum and articles after alteration to the members upon request was increased from $25 to $5,000. Members but not debenture holders were given power to apply to the court to overrule the alteration. This section also applied to companies registered before the commencement of these amendments.

Section 28A was added to prohibit a company from being a member of its holding company, and any allotment or transfer of shares in a company to its subsidiary would be void. This section did not apply to pre-existing arrangements and was subject to various exceptions.

Section 31 was amended to provide that the liability for carrying on business without having at least 2 members for more than 6 months was changed from the payment of the whole debts of the company contracted during that time to the payment of the debts of the company contracted during the period or that part of it. This section was repealed in 2003, when the minimum number of members was further reduced to one.

A new Section 32A was added to regulate matters concerning pre-incorporation contracts. In principle, a company could not contract until it had been incorporated, and it is a basic principle of Hong Kong company law that it can only act through the powers of management vested in its directors. The new rule stipulated that before a company was incorporated, the promoters or persons who purported to act on behalf of the company could enter into contracts either in the name of or on behalf of the company. The company could ratify the contract to the same extent as if it had already been incorporated at that time, and as if the contract had been entered into on its behalf by an agent acting without its authority.


1990

A number of amendment ordinances were passed this year. The Companies (Amendment) (No. 2) Ordinance

1990 (Ordinance No. 17 of 1990) was enacted to implement a new system of keeping company documents on microfilm which could be inspected by the public on payment of a fee.

The incorporation fee was increased from 600 to 1,000 dollars from 1 April 1990 under the Companies (Amendment) (No. 3) Ordinance 1990 (Ordinance No. 28 of 1990).

In determining whether one name was the same as another, Section 20(3) was added under Companies (Amendment) (No. 5) Ordinance 1990 (Ordinance No. 60 of 1990) to provide that certain words were disregarded such as “company”, “company limited”, “limited”, “unlimited”, “public limited company”, etc. Besides this, a few rules regarding the change of company names were added in Section 22. A new Section 22B was also added to empower the Governor (now the Chief Executive of Hong Kong Special Administrative Region) to specify words or expressions which required his approval before they could be included in a company name. Section 22C was also added, which required the Registrar to keep an index of company names which contained the name of every company incorporated in Hong Kong, as well as the name of every oversea company incorporated outside Hong Kong with a place of business in Hong Kong. The Governor could require that any other class of body (whether incorporated or not) also be listed on the index of company names.

The Companies (Amendment) Ordinance 1990 (Ordinance No. 7 of 1990) added the Twelfth Schedule to the Companies Ordinance. The fines and terms of imprisonment for offences under the Ordinance were taken out of the substantive sections and put into the Schedule.

1995C ompanies (Amendment) Ordinance 1995 (Ordinance No.

83 of 1995) initiated the use of Chinese in corporate

documents in Hong Kong. Before this amendment, it was

established as a general rule that corporate documents

should be printed in English. Starting from this amendment,

the company’s memorandum and articles of association

could be printed in either English or Chinese.

In addition, the Registrar could pre-print his signature on

the certificate of incorporation.




1997

W ith the handover of Hong Kong to China, a major

amendment to the Companies Ordinance in 1997

was the renaming of relevant government bodies that

appeared in the Ordinance, for example, “Governor” was

renamed “Chief Executive”. The Chinese words “ 有限公司 ”

were added to the end of the name of a company where a

Chinese name was used.

In addition, problems regarding the objects clause were

addressed in the 1997 amendments. The existing Section

5(1) was repealed and substituted by new Subsections 5(1)

and 5(1A), which basically means that companies are no

longer required to set out objects in their memoranda, apart

from a Section 21 company. A new Section 5A expressly

confers on a company “the capacity and the rights, powers

and privileges of a natural person”. This means that

companies shall now have unlimited capacity to enter

into any transaction that a natural person may so enter.

Section 5B then provides that if a company has objects, it

should not go beyond those objects, and should a company

enter into a transaction beyond its objects, a shareholder

can obtain an injunction to restrain such conduct. But if the

transaction has already been entered into, that transaction

is not invalid by reason of it being beyond the objects.

Section 5C further abolished the common law doctrine of

constructive notice, by providing that an outsider shall

not be presumed to know any matter (including company

objects) merely because of its being disclosed in the

memorandum or articles kept by the Registrar or a return

of resolution lodged with the Registrar. These sections

partially abolished the doctrine of ultra vires in Hong Kong.

In determining whether one name is the same as another,

Section 20(3), as added by the Companies (Amendment)

(No.5) Ordinance 1990 (see above under 1990), was

amended by the Companies (Amendment) Ordinance 1997

to add the Chinese words and expressions “公司 ”, “ 有限公

司 ”, “ 無限公司 ” and “ 公眾有限公司 ”.


1999

A new statutory procedure to deregister defunct solvent

private companies was introduced by the Companies

(Amendment) Ordinance 1999.

2000

Sect ion 21 company that wanted to a l ter i ts

memorandum or articles was no longer required to give

the same notice to the Registrar relating to the proposed

alteration as it was required to give to its members.

(Note: such alteration could only be made if approved by

the Registrar).

A




2003

T he Companies (Amendment) Ordinance 2003 was

passed on 2 July 2003 and came into operation on

13 February 2004 (except Sections 158C(1)(a) and (b)

relating to index of directors which became operative at a

later stage).

The amendment allowed one person to form a company

as opposed to the previous minimum of 2 (Section 4).

Statistics show that after this amendment to allow the

formation of one-member companies, most companies

incorporated in Hong Kong have been one-member

companies, which indicate that the one-member company in

Hong Kong is a popular business vehicle.

Another important change was the prohibition of the

formation of a company limited by guarantee with a share

capital (Section 4(4)).

Prior to the amendment, an application could be made to

the court to annul an alteration of company’s objects or

conditions in the memorandum, for both public and private

companies. Under the new law, this is restricted to private

companies (Sections 8(1) and 25A).

Section 23 was also amended to make it clear that the

memorandum and articles shall have effect as a contract

between the company and each member and between a

member and each other member. Before this amendment,

in the case of Ng Kin Kenneth v HK Football Association

Ltd [1994] 1 HKC 734, it was held that, under Section 23,

whilst articles did in fact constitute a contract between

the company and its members in respect of their ordinary

rights as members, the contractual force given to the

articles of association was limited to those provisions

which were envisaged for disputes between the company

and its members. Thus, where the articles, from the words

used, envisaged disputes between members, they were

not enforceable by the company against its members.

This amendment made it clear that the members and the

company could bring legal proceedings to enforce any of

the provisions of the memorandum and articles which may

have been breached by any party to this statutory contract.

The amended section was applied in the case of Yung Siu

Ying v Hong Kong Sailing Federation (2010) HKCU 254.


2004

O rdinance 30 of 2004 which took effect on 11 July 2008

made a number of amendments to the ordinance:

“Subscriber” was substituted by “founder member” in the

ordinance.

Exceptions were made to the attestation requirement

stipulated in Section 12. Prior to this, the articles were

required to be signed by each subscriber in the presence

of a witness who shall attest the signature by signing his

name and stating his occupation and address in legible

form. Under the amendment, it was stipulated that where

the articles were delivered to the Registrar in the form

of an electronic record and each founder member had

authenticated his signature in such manner as the Registrar

might direct, the attestation requirement would not apply.

The attestation requirement was removed by a further

amendment in 2010 (12 of 2010, Section 5).

Prior to the 2004 amendment which took effect on 11 July

2008 (30 of 2004, Section 2), incorporation was undertaken

by delivering the memorandum and the articles to the

Registrar for registration. From 11 July 2008, registration

has been undertaken by delivering an incorporation form

to the Registrar for registration together with copies of

the memorandum and articles certified to be a true copy

of the original by a founder member. The requirement of

certification by a founder member was, however, removed

by an amendment in 2010 (12 of 2010, Section 7).

The incorporation form must be in the specified form

containing specified particulars as required by a new Section

14A, such as the name of the company, the address of its

registered office, a statement as to whether it was limited

by shares, by guarantee or unlimited, etc. Further particulars

to be included were added in 2010 (12 of 2010, Section 6):

(i) if the company is limited by guarantee, the number

of members with which the company proposes to be

registered on its incorporation;

(ii) if a director who is not a signatory of the incorporation

form does not make a statement of consent and age,

a statement by the signatory that the non-signatory

director has given consent and attained the age of 18;

(iii) a statement that the company’s memorandum and

articles have been duly signed; and

(iv) a statement that the contents of copies of the

memorandum and articles are the same as the original.




2007M ajor amendments to the provisions concerning

non-Hong Kong companies took effect on 14

December 2007 with the commencement of Schedule 2

to the Companies (Amendment) Ordinance 2004. The

main purpose of the amendments was to modernise the

registration regime for “oversea companies” (renamed “non-

Hong Kong companies”), while enhancing the disclosure

requirements of these companies.

2008

A number of amendments made in 2004 (see above

under 2004) took effect this year.


2010A fter the implementation of the Companies (Amendment)

Ordinance 2010 (Ordinance No. 12 of 2010) on 10

December 2010, the Registrar was given new powers to

enhance enforcement against abuses of the company

name registration system, including the power to act upon

a court order under Section 22(3B) to direct a company to

change its infringing name and, under Section 22AA, the

power to replace that name with the company’s registration

number if it fails to comply with the Registrar’s direction

to change name. The same power to replace the name

of a company is given to the Registrar where a company

fails to comply with a direction to change its name which

is too similar to that of another company on the register;

gives the impression that the company is connected with

the Central People’s Government or the Government of the

Hong Kong Special Administrative Region; or where the use

of the name constitutes a criminal offence; or is offensive

or contrary to the public interest.

Pursuant to the new Section 18A, as added by Ordinance

No. 12 of 2010, Section 10, which came into force on 21

February 2011, each consent to act given by a director

for the purpose of Section 14A in relation to a company

intended to be incorporated must be delivered to the

Registrar in the specified form not later than 14 days after

the date of incorporation of the company.




2012 O n 12 July 2012, the Legislative Council passed the

Companies Bill, which was subsequently published

in the Gazette on 10 August 2012 as the new Companies

Ordinance (Ordinance No. 28 of 2012). The new Companies

Ordinance (CO) will be brought into operation after

enactment of the relevant subsidiary legislation, tentatively

scheduled for the first quarter of 2014.

The new CO, which consists of 921 sections and 11

schedules, brings the Hong Kong company law fully up

to date, reinforces Hong Kong’s position as a world-class

location in which to do business and provides a modernised

legal framework for the incorporation and operation of

companies in Hong Kong. The new CO aims to achieve four

main objectives: enhance corporate governance, ensure

better regulation, facilitate business and modernise the law.

A summary of the major initiatives introduced to achieve

these objectives is set out in Annex II.

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